Canada's July CPI to Undermine BoC Rate Hike Expectations

Canada's July Consumer Price Index (CPI) is expected to show core inflation below 2%, according to Brown Brothers Harriman's (BBH) Elias Haddad. This would reinforce an extended pause by the Bank of Canada (BoC). Haddad flags looming US tariffs on nearly USD 20 billion of Canadian imports as an additional headwind.

The BoC projects headline CPI at 2.5% y/y and core CPI (average of trim and median) at 2.0% y/y over Q3. However, Haddad expects Canada's July CPI to come in lower than these projections.

Haddad notes that the US will impose 50% tariffs on nearly $20 billion in imports from Canada unless trade talks yield a breakthrough. The tariff would apply to a range of products, including wine and hockey sticks.

Core inflation anchored below the BoC's 2% target and ongoing US-Canada trade friction support an extended BoC pause, according to Haddad. This leaves room for BoC rate-hike expectations to be repriced lower against CAD, with bets currently at 65bps in the next twelve months.